Waiting on that Market Catalyst

Justin Huebner – Grain Division Manager and Financial Services

With the wet spring we have seen, corn planting progress got off to a slow start, but has since recovered and is currently running at about the 5-year average pace. Long range weather forecasts for the remainder of the year are all over the board, so trying to predict weather this growing season is near impossible. The current average estimate is for El Nino conditions to return late fall and into early winter. El Nino conditions typically equate to good growing conditions for the Midwest, but with this late onset missing the growing season, it doesn’t appear we will benefit from the conditions for this year’s crops.

As you well know, grain markets have struggled in recent months due to the large supplies both in the United States and around the world. The lack of a true catalyst is the reason that the market hasn’t sold off further but also hasn’t been willing to move higher either. For now it is remaining pretty stagnant. The winter storm in wheat growing areas during the weekend of April 29 was initially thought to potentially be that catalyst, as 44% of the winter wheat crop was reported in the heading stage, which is a crucial stage where wheat can be susceptible to weather damage. However, the large funds are record short in the overall wheat complex, so if there is a realized significant damage to the wheat crop, we could see short covering even if the longer-term fundamentals are not bullish. It is going to take some time as the market is trying to work out of the lowest price level we have experienced since 2006.

Demand for US grain has remained rather strong as low prices and a strong Brazilian Real currency has kept us competitive in export markets. South American harvest is progressing along after some wet weather hampered their harvest a bit. We could see market move in the coming weeks depending on how that shapes up.

Looking at livestock, the cattle market rallied strongly and (perhaps scary) quickly in a perfect storm of low available slaughter weight animals, along with packers needing to fulfill domestic and international contracts. This led to extremely strong cash values and a sudden situation where cattle producers can lock in good returns. History has told us that the issue with these strong, abrupt rallies is that they usually don’t last terribly long, and the selloff can happen just as quickly. May is a month where the available animals for slaughter grows, and this typically continues through the summer. If not currently hedged, be prepared to do so at the sign of a market turnaround.

As always, the best you can do is stay abreast on what it going on both domestically and internationally. Between weather events and foreign affairs, markets can swing either way relatively quickly. I encourage you to be thinking about your marketing plan for this year’s crop, and if you have any questions, please give me a call.

Waiting on that Market Catalyst